Goldman Sachs secretly wagered on housing disaster, McClatchy investigation shows

Q. What does it mean when you’re selling something and secretly betting that what you’re pushing is worthless?

A. If your name is Goldman Sachs, it means making a windfall on human misery. And hunting down your victims to squeeze every last penny out of their disaster.

From Greg Gordon of McClatchy:

“In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.

Goldman’s sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation’s premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.

Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.”

Hmm. Shouldn’t that be illegal? Well, yes, actually. Gordon quotes BU econ professor Laurence Kotlikoff who puts it simply:  “This is fraud and should be prosecuted.”

The imminently well-connected firm just happened to be the only one on Wall Street that got out of the subprime game in the nick of time. Sound suspicious? You bet. McClatchy dug, and found pay dirt. According to their inquiry, Goldman Sachs:

“* Bought and converted into high-yield bonds tens of thousands of mortgages from subprime lenders that became the subjects of FBI investigations into whether they’d misled borrowers or exaggerated applicants’ incomes to justify making hefty loans.

* Used offshore tax havens to shuffle its mortgage-backed securities to institutions worldwide, including European and Asian banks, often in secret deals run through the Cayman Islands, a British territory in the Caribbean that companies use to bypass U.S. disclosure requirements.

* Has dispatched lawyers across the country to repossess homes from bankrupt or financially struggling individuals, many of whom lacked sufficient credit or income but got subprime mortgages anyway because Wall Street made it easy for them to qualify.

* Was buoyed last fall by key federal bailout decisions, at least two of which involved then-Treasury Secretary Henry Paulson, a former Goldman chief executive whose staff at Treasury included several other Goldman alumni.”

Speaking of houses, when is someone from Goldman Sachs taking a trip to the Big House?

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